What are Carbon Credits, Carbon Allowances, Carbon Offsets, and Carbon Removals?

Carbon projects generate carbon offsets by performing activities that fall under one of the three categories below. Project activities commonly include the protection, monitoring, and rehabilitation of ecosystems as well as social activities in communities connected to the project including training, education, and employment in ecosystem conservation.

Projects that reduce the GHG emission intensity of current operating processes. For example, the implementation of renewables into power consumption such as biodiesel, wind, and solar.

Projects that avoid future GHG emissions. For example, projects that conserve existing forests avoid the emissions created by removing and destroying trees. REDD+ projects specifically look to avoid emissions from the various types of degradation that occur within forests.

Projects that capture and store greenhouse gases from the atmosphere. There are many types of carbon removal projects; some examples include planting new forests, increasing carbon capture in soil, and direct air capture – which extracts carbon dioxide directly from air.

The Voluntary Carbon Market contains offsets from a wide range of projects that claim emission reductions, but many offsets available lack credibility, meaning they lack the evidence needed to ensure real carbon and other benefits. In order to be considered credible, it is important that offsets come from projects that address the certain key principles. While the names differ between organizations, the core concepts remain consistent and are summarized below.

The project must demonstrate; the necessity for carbon finance to enable the project, it is not required by laws/policies/regulations, is not common practice, and the baseline scenario is credible.

Verifiability concerns how a project measures, reports, and verifies the actual amount of carbon that has been removed by a project. This includes how a project considers; sources of emissions that occur to enable the removals, what would occur if there was no project (e.g. a Baseline or Business as Usual), and how the project may displace emissions (economic leakage).

Accurate accounting goes beyond calculations to cover monitoring, reporting, and verification methods as well as sound consideration of the potential for leakage. The project must use transparent accounting that reflects the best science available, identify and account for uncertainties, use conservativeness in estimation, account for all inputs and outputs for emissions, account for QAQC in monitoring plan, validate calculations using a third party, and ensure all offsets are unique. Leakage occurs when attempts to reduce GHG emissions in one place result in a shift of emissions to another location. For example, leakage can happen if a project protects a forest from illegal logging activities but does not ensure illegal logging isn’t happening nearby on non-protected forest land.

Durability addresses how long the carbon is expected to be stored and what happens if stored carbon is released back into the atmosphere.

Projects must adhere to all relevant safety, environmental, and social regulations including the identification and mitigation of potential risks. This should include stakeholder engagement to identify and mitigate risks of the project’s development and operation.

Co-benefits of a project describes the non-carbon benefits that a project provides to communities and the environment that it impacts. The project should quantify the potential positive and negative impacts to people, air, water, and land quality that occur as a result of the project and identify the safeguards in place to mitigate the risks. It is also important for projects to engage with stakeholders over the life of the project to continually improve social and environmental outcomes.

Credible carbon offsets are issued by a standard body like Verra, Gold Standard, or American Carbon Registry, which ensures that the quantification of a carbon project’s emission reductions follows a standard, public methodology and is verified by a third party. Standard bodies list projects and their details on a public register to avoid double counting and track the sale and use of issued offsets.

‘Carbon credits’ refers to both carbon allowances and carbon offsets, which both refer to a reduction in GHG emissions. The purpose of carbon credits is to attribute a value to emission reductions, avoidances, and removals. Credible carbon allowances exist within compliance carbon markets, while carbon offsets exist within voluntary carbon markets. Carbon allowances regulate emissions from certain industries and are managed by a regulatory body. Credible offsets follow a rigorous and publicly-available set of rules – a methodology – and are issued by a recognized standard body.